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E-commerce
has made tremendous growth in Nigeria since the massive penetration of internet
services in Nigeria and with it came lots of gaps in the Nigerian payments
system. The Central Bank of Nigeria (“CBN”) which is responsible for the
overall management of Nigeria’s financial system has the specific power to
regulate, promote and facilitate payments. Section 47 (2) and (3) of the
Central Bank of Nigeria (Establishment) Act (the “Act”) empowers the CBN to
promote and facilitate the development of efficient and effective systems for
settlement of transactions (including development of electronic payment
systems).

The CBN is also empowered to prescribe
rules and regulations for the effective operations of all clearing and
settlement systems.[1] In line with this mandate, the CBN has continued
to develop regulations, guidelines and circulars that define, regulate and
control payment activities within and beyond the traditional banking system.
Some of these regulations and guidelines have been discussed in my previous
articles.
On January 30th 2017, the CBN published an
exposure draft of the ”Guidelines for the Direct Debit Scheme (Revised),” and
”Guidelines Bills Payments in Nigeria”. The CBN explains that the revised
version of the guidelines on direct debit “recognizes the existing and emerging
multi-channel options (Online platforms, Instant Payments etc.) applied for
Direct Debit instructions in Nigeria. In addition, the provisions of these
guidelines are harmonized with developments in the payments system since the
release of the last version.”[2] 
According to Wikipedia, “[a] direct debit
or direct withdrawal is a financial transaction in which one person withdraws
funds from another person’s bank account. Formally, the person who directly
draws the funds (“the payee”) instructs his or her bank to collect
(i.e., debit) an amount directly from another’s (“the payer’s”) bank
account designated by the payer and pay those funds into a bank account
designated by the payee. Before the payer’s banker will allow the transaction
to take place, the payer must have advised the bank that he or she has
authorized the payee to directly draw the funds. It is also called
pre-authorized debit (PAD) or pre-authorized payment (PAP).”[3] As such, once the payer has given an initial
authorisation to the payee to collect funds from an account he holds with a
financial institution (a commercial bank), that authorisation is continuous and
the right of the payee to keep collecting that sum (or an expected variation of
the sum) becomes running except the payer stops or revokes the authorisation.
When you think of a direct debit,
subscription fees for your LinkedIn account, Netflix etc. quickly comes to
mind. Some important features of a direct debit are that 1), the amount to be
debited is does not have to be fixed, it may vary from one payment to another,
2) the date that the debit is to occur is known and fixed, 3) the bank is not
an integral part of the contract and 4) the payment is usually initiated by the
payee and not the payer/account owner. Please note that a direct debit is not
direct deposit or a standing order, which are instructions by the account owner
or payer to his bank to credit a certain amount of money to a payee at a
pre-determined date.
This initiative by the CBN is ripe and
commendable, considering the volume of online transactions in Nigeria and our
participation in international e-commerce transactions on a daily basis. It is
important to note that the CBN already had an existing guideline for direct
deposit and Nigerians have been able to utilize their bank cards, (both
MasterCards and Visa Cards) to make direct debit payments to both foreign and
local merchants. However, this revision is aimed at bringing the said
guidelines up to date with trends in the payments industry and to ensure that
all parties to such transactions are protected, regulated and monitored.
The provisions of the two guidelines are
standard and comparable to those of other developed countries. However, some of
them are noteworthy:
1.      Biller’s
bank must be a member of the clearing system or integrated with Payment Service
providers that accept Direct Debit for processing.
2.      The
Biller’s bank shall hold an account for the Biller to receive proceeds of
Direct Debit.
3.      Payer’s
bank must be a member of the clearing system or integrated with Payment Service
providers that accept Direct Debit for processing.
4.      Payment
Service Providers must be duly licensed by the Central Bank of Nigeria and
subject to electronic payment guidelines.
5.      Direct
Debit transactions are of 2 types: a. Fixed Direct Debit: allows fixed amounts
to be debited from a payer’s account. b. Variable Direct Debit: allows variable
amounts to be debited from a Payer’s account. Typically used for payments where
amounts cannot be predetermined in advance. In this instance, there is need for
the service provider to intimate the subscriber (payer) of the invoice amount before
the debit is sent to his/her bank.
6.      A
penalty should be applied to the payer for Direct Debit instructions not
honored due to insufficient funds. The penalty prescribed for dud cheques shall
apply.
Point 1 through 4 above suggests that the
merchant’s (biller’s) bank must be a Nigerian bank or the merchant must employ
the services of a local payment service provider. As such, one would imagine
that international merchant that intend to continue to use this medium must
comply with these requirements, if that have not been the case.
 The CBN has called for comments from
stakeholders before the final version of the two guidelines are issued. The
draft guidelines can be downloaded athttps://www.cbn.gov.ng/Out/2017/BPSD/GUIDELINES%20FOR%20THE%20DIRECT%20DEBIT%20SCHEME%20AND%20BILL%20PAYMENTS%20IN%20NIGERIA.pdf
[1] Section 47 (3) of the Central Bank of Nigeria
(Establishment) Act.
[2] Debit Guidelines for Direct Debit Scheme in
Nigeria, 2017 (revised)
[3] Wikipedia, Direct debithttps://en.wikipedia.org/wiki/Direct
debit
 Retrieved on 07/02/2017
Magnus Amudi
Corporate, Energy and Environmental Law
Practitioner.

Ed’s Note – This article was first posted here